Profits are hiding the real picture: rising auto-repair costs are squeezing insurers

At first glance, the headlines read reassuring. Major outlets and industry reports show insurers returning to strong profitability after years of pressure: U.S. property-and-casualty carriers reported underwriting gains and bumper results in 2024, and analysts pointed to higher earned premiums and investment income as drivers of better financials. Financial Times+1

But look below the top-line numbers and the story is more complicated. For many carriers, an important and growing threat lives in the claims line: the sharply rising cost of repairing modern vehicles. That pressure quietly eats underwriting results, forces higher rates on drivers, and—if left unchecked—may make today’s “good” profits far less durable.

What’s actually driving claims inflation in auto?

There are several converging forces pushing collision claim severity higher:

• Parts inflation and supply shocks. OEM parts prices have risen in many markets (affected by tariffs, global sourcing, and supply constraints), and even where aftermarket prices lag, repairable-parts baskets are becoming more expensive. Marketplace data and collision-repair trackers reported faster price growth for new OEM parts in 2025. repairerdrivennews.com+1
• Vehicle complexity. Modern cars carry more sensors, ADAS components, and electronic modules that require calibration and replacement after a collision — each repair adds labour and specialized services that inflate the ticket. Analysts and claims-technology vendors repeatedly flag vehicle complexity as a key cost driver. Enlyte+1
• Rising labour costs and technician shortages. Skilled technicians are scarce in many markets — labour rates and cycle times have increased, directly raising claim severity. Industry trend reports and surveys have singled out technician shortages and higher labour rates as major contributors to higher repair bills. rsmus.com+1
• Regulatory/tariff effects. Policy changes and tariff moves that affect imported parts can quickly lift OEM prices in ways insurers hadn’t fully priced in. Coverage and repair outcomes are sensitive to these shifts. Claims Journal+1

Put together, these forces mean more claims are costlier to resolve — and that growth in premiums or investment returns can mask the rising trend in claims severity for only so long.

Why profits today don’t guarantee profits tomorrow

Industry headlines about record or rebound profits are factual — the P&C sector has benefited from strong underwriting actions and a favorable investment backdrop. But those profits can be uneven across lines, and they mask volatility in severity trends that play out over months or years. When carriers raise rates after severity rises, there’s a lag: pricing, regulatory approval, and competition all slow how quickly underwriting can catch up. Meanwhile, if parts and labour keep outpacing rate increases, loss ratios will widen again. news.ambest.com+1

In short: better results this year don’t immunize insurers from claim-driven margin erosion next year.

The practical fix: control the repair cost stack (parts policy + dynamic supply-chain monitoring)

If the problem is higher parts and repair costs, the solution set is largely operational and commercial: control what you can buy, where you buy it, and how quickly you can turn repairs. Two levers matter most.

A favourable, nuanced part-replacement policy

Don’t think in terms of “OEM vs aftermarket” as a binary. Competitive, well-engineered part-policies that allow calibrated use of aftermarket, certified used/recycled, and approved remanufactured parts — when safe and appropriate — reduce spend while keeping repair quality high. Marketplaces and parts-procurement platforms have data proving that replacing some OEM parts with certified alternatives produces material savings without increasing downstream risk. Programs that certify shops and parts suppliers, and that create clear replacement rules by part type and vehicle class, are effective at protecting quality while cutting cost. Emergen Research+2PartsTrader+2

Operational practices that matter

• Define parts-by-parts policies (e.g., which components must be OEM: safety-critical vs cosmetic).
• Pre-approve a network of recycled/aftermarket suppliers and salvage yards to speed sourcing.
• Use warranty and quality metrics to monitor substitute-part outcomes so policy can be iterated from live data.

Dynamic monitoring of supply-chain performance

Static procurement agreements are vulnerable in a fast-moving market. Insurers need real-time visibility into parts prices, delivery lead times, fill rates, and regional shortages. That means integrating with parts marketplaces, parts-logistics platforms and shop network systems so procurement decisions are data-driven and time-sensitive.

Practical elements of a dynamic program

• Dashboard KPIs: parts price inflation (by OEM/aftermarket/recycled), days-to-delivery, fill rate, and average repair cycle time.
• Automated sourcing logic: route orders to alternatives when primary suppliers’ lead times or prices spike.
• Predictive alerts: use historical seasonality and current orders to flag likely shortages or tariff impacts.
• Close the loop: feed repair outcomes and return/warranty data back into procurement rules to preserve quality. repairerdrivennews.com+1

Where to start: a pragmatic checklist for insurers

1. Audit your part-replacement rules by part class and vehicle type; pilot expansion of certified recycled/aftermarket options where safe. PartsTrader
2. Integrate with at least one real-time parts marketplace or aggregator (to capture price and lead time signals). repairerdrivennews.com
3. Track technician labour metrics and invest in network training or preferred-shop partnerships to reduce hours per repair. rsmus.com
4. Build predictive monitoring (price, delivery, tariff/regulatory flags) and automate sourcing swaps when KPIs exceed thresholds. Claims Journal+1
5. Measure unit economics continuously: claim severity per repair, procurement cost per claim, and cycle time — and tie product pricing to those metrics.

Bottom line

Yes, insurers look profitable in many headlines today — but profits can be shallow if cost drivers are ignored. The real battleground for sustainable margins is in the claims operations: parts strategy and supply-chain responsiveness. Insurers that move from static procurement policies to dynamic, data-driven sourcing — and that pair that with intelligent part-replacement rules — will blunt claims inflation and preserve underwriting health. Those that don’t will find that today’s “good” headlines are a fragile veneer.